Caroline Lennon-Nally once vowed that she would never resort to mortgage-to-rent (MTR), a state-backed debt-relief scheme that allows distressed borrowers to remain in their homes by swapping ownership for a long-term tenancy.

AIB’s €1bn portfolio sale in April included 220 home loans

“I would rather burn [my home] than rent it back off the banks,” she declared during media interviews in 2011. “I have put huge amounts of my own money into this house. I worked my whole life for it.”

For a brief moment she became the public face of a hitherto hidden problem: public servants with jobs for life who could not afford their mortgages following a succession of crisis-era pay cuts and tax hikes.

Eight years on, Lennon-Nally appears to have changed her mind. She resurfaced last week as one of six directors of Home Options, a not-for-profit company that claims to have a more palatable alternative to the accepted narrative that the only way of ridding Ireland of its legacy of toxic mortgage debt is to sell the loans to vulture funds.

The idea is to tap into ethical funding from America and elsewhere to provide a private version of the state’s MTR scheme that will allow households to buy back their properties at a discount in the future as their finances improve. Rather than being consigned to rent for the remainder of their days, Home Options offers them a second chance at homeownership — a feature likely to have influenced Lennon-Nally’s U-turn.

“There is a fairer way,” said Michael Durkan, another Home Options director, whose day job involves producing and directing theatrical Irish dance shows.

“The politicians have failed us, so we’ve taken matters into our own hands and come up with our own solutions . . . We’ve access to the same resources and expertise as the vulture funds.”

The launch comes as banks are preparing at least three batches of distressed mortgages for sale before the end of this year, according to Link Asset Services, an Australian outsourcing specialist that has taken over the management of many of the portfolios that Irish banks have already sold to vulture funds.

Ulster Bank will be next out of the traps with plans to offload about 3,500 mortgages, on which €900m is owed. Arizun Group, another provider of owner-turned-tenant debt packages, estimates up to €7.8bn owed on 40,000 distressed Irish mortgages could be up for grabs. Some are still on the banks’ books while the remainder have already been sold to vulture funds, which are now trying to exit their investments by reselling the loans to other distressed-debt specialists.

The impetus for all these transactions comes from European banking watchdogs, which are demanding that lenders finally draw a line under their legacy of bad loans. While the three Irish-owned banks have more than halved non- performing exposures to 8% of their loan books in the three years to the end of 2018, regulators want this reduced to under 5%. This is why Link sees Ireland as “the gift that keeps giving”.

Yet the Central Bank of Ireland sounded a note of caution last week, warning that vulture funds could quickly lose their appetite for the risks involved in turning around soured Irish mortgages as the global economic outlook becomes more uncertain. Even if investor interest were to hold up, the Central Bank said its research “suggests that many non- performing loans still on bank balance sheets may be difficult to cure”.

Ulster Bank plans to offload 3,200 home loans in an upcoming sale

The aspect of loan sales that sparks most public anger — the ability to dispose of loans without borrowers’ consent — is what makes them attractive to banks. Packaging thousands of loans into a single job lot is a much quicker way of getting them off the banks’ books than alternatives such as restructuring and MTR, which require the agreement of each borrower before they can proceed.

Home Options aims to combine the best of both: offering banks a quick fix by taking entire portfolios off their hands and then offering debt forgiveness to the borrowers involved if they agree to surrender ownership in exchange for a long-term tenancy.

While it is vague on details, it is understood that Home Options is already in talks with AIB and plans to bid for the portfolio that Ulster Bank is bringing to market. This risks dragging it into a bidding war with vulture funds such as Cerberus Capital Management, the most active buyer of distressed Irish mortgages.

Home Options is betting that its ethical credentials and not-for-profit ethos will give it the edge over the vulture funds, making it a more politically acceptable alternative for a banking industry that is still largely state-owned.

Lacking the nakedly commercial focus of the vulture funds, Home Options will be able to offer more upside to its owners-turned-renters, especially when it comes to the terms under which they can buy back their homes in the future.

This will give it a clear edge when dealing with the banks, according to Ben Hoey, a former banker whose company, Quartech Solutions, will provide funding and asset management for the mortgages that Home Options plans to acquire.

“We’ll be able to match the [vulture] funds on price while at the same time helping banks protect their reputations and franchises,” he said.

“There’s a weight of money — billions of euros — available from US pension funds and other ethical investors if we can show that our proposition has a social dimension. We can offer debtors a clear plan under which they will one day own their properties again.”

Buying entire portfolios with the hope of converting the households involved from owners to tenants is a risky proposition, according to Arizun founder John McDaniel. He believes that up to 20% of loans in any portfolio are owned by strategic defaulters who lack the will, rather than the ability, to pay what they owe. They are unlikely to co-operate with any debt deal they are offered, no matter how sweet the terms.

“If Home Options has a magic bullet for dealing with people who are gaming the system, then more power to them,” McDaniel said. “They can’t do a deal without the agreement of the guy living in the house.”

PTSB sold 7,400 home loans in a portfolio in July 2008

Despite its ethical credentials, Home Options will not be a soft touch, according to Hoey. “If debtors don’t accept any of the solutions on offer, we will enforce against them,” he said.

Home Options and Arizun are targeting what they believe is a large gap in the market left by the state’s MTR scheme, which is open only to households with incomes of less than €25,000-€35,000 after tax, depending on where they live. Apart from excluding many struggling families on income grounds, the state scheme is also mired in bureaucracy. Just 445 mortgage-to-rent cases have completed since 2012.

Yet households that exceed the MTR income limits should have the resources to reach a restructuring deal that is less drastic than surrendering ownership of their homes, according to Paul Cunningham, chief executive of Home for Life, an MTR provider funded by AIB.

“If you can afford to pay a market rent, you can afford to make a substantial payment on your mortgage,” he said. “Why would your bank sell your mortgage in these circumstances?”

Ulster Bank faces similar questions as details emerge about the latest portfolio it is putting up for sale. While the loans involved have accumulated an average of more than two years of arrears, this problem could have arisen any time in the past six years, according to consumer advocate Brendan Burgess of Askaboutmoney.com.

“Ulster Bank’s previous loan sales were justified because they involved customers who were paying nothing and not engaging,” he said.

“The current portfolio includes people who are paying their mortgages. These loans should not be sold because the arrears could be sorted out by extending the mortgage term or reducing the rate of interest. The loans may be non-performing under the nonsensical definitions used by banking regulators, but they are sustainable.”

Ulster Bank said the portfolio was being sold only after an extensive trawl of all its problem mortgages to find alternative solutions. The portfolio includes only loans that are unsustainable or in which the borrower has failed to co-operate, according to the institution.

As more mortgages come to the market, questions about the merits — financial and otherwise — of what the banks are doing will only intensify.

A new not-for-profit company has launched with the promised aim of keeping families who cannot pay their mortgages in their home.

Homeoptions says it will provide an alternative to so-called “vulture funds” for banks to sell distressed home loans to and is currently in active discussion to buy portfolios of non-performing loans.

The all-island organisation claims to have the financial potential to handle the estimated 28,000 home mortgages that have been in arrears for more than two years.

A Mortgage-to-Rent-to-Repurchase structure will be operated by the new entity, offering home owners with repayment issues the opportunity to stay in their houses through to retirement.

They will also have the option to buy back their property at a price agreed today, should their circumstances allow for it.

But forbearance will only go so far, and Homeoptions said it will have to enforce rules against any participants who don’t meet their obligations.

It says this will only happen once approval has been received from the board and procedures fully followed.

The company is being set up by individuals involved in activities focused on keeping families in their homes, with each of the board members holding shares in trust.

The board is to be chaired by Erskine Holmes OBE, the Founding Director of the Ulster Community Investment Trust.

“Homeoptions is a socially and economically responsible alternative to vulture funds – an Irish solution to the distressed family home mortgage crisis rooted in a not-for-profit business model and an ethos of ‘fairness for all’,” he said.

“Now, all of 10 years since the property crash, Homeoptions represents an important opportunity to put 28,000 families out of the reach of profit-motivated vulture funds and to deal fairly with all sides for the wider and long-term benefit of Irish society.”

Other founding members of the board include Michael Durkan, a Founding Director of civic advocacy group Right2Homes, Eve Earley from Empowering Change & Right2Homes, healthcare and mental health worker Caroline Lennon-Nally and Brian Reilly, a non-executive director of Magnet Networks & a Founding Director of Right2Homes.

Homeoptions says its aim is to keep families in a home by providing “tailored, affordable solutions, taking account of each family’s personal circumstances.”

Funding will be provided via senior and junior debt, it claims, and public funds will not be needed.

Any profits will be invested back into further loan purchases as well as an affordable housing programme for young people.

The funding and asset management services will be provided by Irish firm Quartech Solutions – a company with a background in managing large loan portfolios.

The new firm has received the backing of Master of the High Court, Edmund Honohan, as well as Fr Peter McVerry.

“It is essential to create the building blocks of reconstructing our stressed housing economy on a North-South basis.

The Ed Honohan Bill, when it becomes law will create a bonus no one has noticed.

There is no Mortgage Rescue Scheme in Northern Ireland and the one-way traffic of the reliance in the South on Vulture Finance has created a smugness in the North. There is a tendency here to say ‘We have it under control, no Vultures here’.

The main mortgage lenders backed off running to the courts about a year ago and seem to think they have a successful formula of reputational damage limitation. This, they say relies on forbearance, extended terms and agreement on voluntary sales.

This simply cannot last with the highest levels of negative equity in the UK and a potential tsunami of home loss once base rates rise again, as they certainly will.

Social lenders and housing associations on a cross-border approach to mortgage rescue have to be part of the answer. There are sources of funds still to be tapped in Ireland, Europe and the USA for social ethical lending where the funders will be interested in the ethical bottom line.

Ulster Community Investment Trust (UCIT) is willing to take the lead in creating an “Ethical Housing Finance Fund”.

WHETHER you are a “performing” borrower or a “non-performing” borrower and in arrears, the sale of your loan and mortgage to a Vulture Fund represents an alarming development. Even though it is stated Government policy to “keep families in their home”s the self-same Government’s actions are of little effect.

The Bank or Building Society which gave you the loan in the first place had the right to demand repossession once you fell into arrears and, even if you were up to date, could have changed the interest rate at it’s “discretion”. They often didn’t press these buttons, though, because the banks are long term credit providers and can afford to take a long term view.

For Vulture Funds, however, the scenario is entirely different. You are not a “customer” as such. They are not offering you credit cards or car loans. They want to get back what your loan cost them, together with a windfall profit. If you cannot raise the finance to meet their demands, you will eventually be evicted.

And if you are not currently in arrears they will “review” your loan term and use those very same “discretionary” clauses to squeeze you to the point of unaffordability and eventual default.

Default is the end game, and the Vulture Funds are not regulated.

Since 2016 players in the consumer mortgage market are forced to comply with very extensive data requirements imposed by EU Directive when they offer a new facility, and any offer of new terms for an existing loan is, strictly speaking, a new facility. Vulture Funds have no intention of becoming long term providers of credit. Forget that. They want to sell or flip the property and pocket the profits. If the house is sold, the State can rehouse the borrowers, job done, right?

It’s happening already in the rental market. Without any Court Order, a mortgage lender can appoint a Receiver to evict tenants and sell. That’s the reason for the lengthening emergency housing lists. And the Judgement Mortgage carnage will be next.

The Focus Ireland Amendment to keep tenants in their homes when a Landlord or his Receiver is selling was deemed “Unconstitutional.” Michael McGrath’s Bill to set up a debt resolution agency was “blocked by the ECB.” Boxer Moran’s Bill to require Courts to conduct a full inquiry is now “on the long finger.”

I have the strong suspicion that although Ministers talk about” keeping people in their homes,” they are really ok with the situation as described above.

Repossession and Personal Insolvency is their preferred option!

Slowly but surely Official Ireland is preparing to turn a blind eye to the activities of the vulture funds cranking up to evict families in mortgage arrears.

About 10% of all house mortgages are in serious arrears. Leo Varadkar has claimed that their default has resulted in higher interest rates for the rest, but the reality is that it is the loss making tracker mortgages which are forcing Irish banks to overcharge on variable rate mortgages. An Taoiseach is joining the mob which is demonising the 10% as “strategic defaulters” without any serious research to back up this allegation. It is a populist charge and unbecoming of an Taoiseach.

He also asserts that if lenders in a housing market cannot be reasonably sure of repayment, if necessary through repossession, they won’t lend. That, clearly, is not the case when one sees the competition in lending at the moment. If an Taoiseach was keen to see other lenders entering the market, why is he so opposed to the Public Banking proposals of Sparkasse?

Ask yourself this question, why is Official Ireland so keen to paint a rosy picture of the future in the hands of Vulture Funds?

The reason is simple. I believe, down the road they want to be able say that when Michael Noonan invited them in and gave them tax breaks, they didn’t know the vulture funds’ real intentions. They can never admit to having made an incredibly stupid mistake. They will say they were misled.

That mistake will cost us all dearly.

There is a grim determination to let the vulture funds get on with their clearout. The government has stalled on Boxer Moran’s bill; on Michael McGrath’s bill regulating debt servicers; on John McGuinness’s bill to introduce not-for-profit alternatives to the vulture funds. None of these would cost the taxpayer a red cent. The government has no genuine interest in addressing the issue, whatever they say in public.

When then Taoiseach Enda Kenny confirmed that it was the government’s policy to ensure that repossession of family homes should only be a last resort, I accepted his bona fides. With the present government, I have my doubts.Back then, the policy was that banks should deal with distressed borrowers through the insolvency processes, with Mortgage to Rent as a backstop.

Now, the government is sitting back and letting the banks sell off the loans to vulture funds dressed up as “charities” and enjoying tax free windfalls. These arrangements must amount to illegal state aid under EU rules.

Is this the best way to keep families in their homes? I know it isn’t and the government knows it isn’t.

I haven’t seen any cost benefit analysis for the taxpayer or business model published by a vulture fund which offers long term security to distressed borrowers.

It is also untrue that full protection travels with the loan to the new owner. Vulture funds are not regulated. Recently the Finance Committee was informed that only a very low level of regulation (light touch) could be considered for such funds.

The ECB does not want the vulture funds regulated because they believe the funds are necessary for markets or countries that have experienced some kind of financial collapse.

So, what if vulture funds are preferred to cut deals with these borrowers? Where are the borrowers to get the capital to do these deals?

The Credit Bureau is a reference point for all lenders. Once listed, you will be barred from obtaining credit for seven years.

The credit unions, in the past, often assisted those affected by a poor credit history. This is no longer the case because of tight Central Bank regulation.

I proposed the creation of a “friendly” vulture fund to help rescue families who were not strategic defaulters. I proposed a National Housing Co-Op to undertake this project at no cost to the taxpayer.

I was told, by the Department of Finance, that Leo Varadkar would not agree to establish such a co-op. It would appear that any move to challenge the banks or give the citizen a fighting chance to save their home will not be considered under any circumstance.

Yet, the European Central Bank and our Central Bank have confirmed that the banks have not been instructed to sell to vulture funds and the mortgage crisis could be dealt with through social policy.

Furthermore, there is an acceptable accountancy measure, which can be used by the banks to take the loans off the balance sheet and work out individual sustainable solutions for the borrowers but this doesn’t suit their agenda in spite of being saved by the public purse.

There are two main difficulties facing voluntary bodies in this area. Firstly, they are excluded from the tendering process when a bank is offloading it’s non-performing loan books.

Secondly, we cannot legislate to include them, without interfering with the banks’ constitutional property rights unless the sale process is transparently on open market terms.

This is where the legislation I am now promoting comes in. It creates a regulated market allowing ‘not for profit’ co-ops to bid for these homes when they are on the open market.

It also copper-fastens the borrowers’ right to remain in their homes until the sale process is completed. Making individuals and families homeless just adds to the housing and homeless crisis. The process of repossession is devastating for those about to lose their homes.

The legal system is stacked against them. The lay litigant is rarely successful against the might of the banks and their costly legal teams.

In this way, ethically funded or crowd funded housing co-ops can pick up where the bust banks left off.

They could make it possible to keep families in their homes as long term tenants or on a sustainable mortgage arrangement. Contrary to the spin, vulture funds do not do deals of this kind.

They are in for the short term and a quick profit. In fairness to them, they are clear about their intentions.

Government can play its part by supporting the Affordable Housing and Fair Mortgage Bill and maybe even consider investing in the project.

John McGuinness, TD can be reached directly via Email at john.mcguinness@oireachtas.ie

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Equality & Fairness for All

We are taking a fairness to all approach, including creditors; accounting for each debtor’s personal circumstances including age, affordability, dependants and suitability of the property. We will create solutions for each family to aid their recovery from the property crash and ensure suitable accommodation through to retirement and beyond.

Mortgage To Rent

Homeoptions uses a Mortgage-to-Rent-to-Repurchase (MRR) model, which it makes available to all debtors who work with us. Existing Mortgage-to-Rent schemes are available only to a limited number of debtors.

Not for Profit

Homeoptions is a “Not for Profit” organisation offering a social and responsible alternative to Irish banks looking to sell their home loan positions and also to the homeowners whose loans are affected.